How to deal with your creditors

If you're in debt, it's important to keep in contact with the people you owe money to (your creditors). If you're very worried about your debts, you may be afraid to contact them, but you can get help to do this. If your creditors don't know you're having financial difficulties, they'll assume you don't want to pay and start taking action against you. For example, they could take you to court or, in some cases, they could send bailiffs round to take away your belongings. It's almost never too late to start talking to your creditors and most creditors will appreciate it if you contact them.

Some debts are more urgent than others because the consequences of not paying them can be more serious than for other debts. These are known as priority debts and include things like mortgage, rent and council tax debts. The people you owe this type of debt to are called priority creditors.

Debts which are considered to be less urgent than priority debts are debts such as credit card debts, overdrafts and other unsecured loans. These type of debts are known as non-priority debts.

If you've got any priority debts, you must make sure you can pay these first before coming to any arrangements with non-priority creditors.

You can get free help to deal with your creditors from your local Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by e-mail, click on nearest CAB.

parking penalties issued by local authorities (but parking fines issued by the courts are priority debts).

You can't be sent to prison for not paying non-priority debts. But if you don't make any offers to pay, without explaining why, your creditors may take you to court. If you still fail to pay when the court has ordered it, your creditors can take further action. For example, they can get another court order which allows them to send bailiffs round to take your property away. This will be sold to cover your debts.

There are some debts which are considered to be more urgent than non-priority debts. These are known as priority debts and include things like mortgage, secured loans, rent and council tax debts. You must make sure you can pay priority debts before you come to any arrangements with your non-priority creditors.

How to treat hire purchase or conditional sale debts

Hire purchase debts are usually treated as non-priority debts. However, in special circumstances you may want to treat a hire purchase debt as a priority debt. For example, if you bought a car on hire purchase and you need it to get about because you are disabled.

If you don’t keep up payments under a hire purchase agreement, the lender may be able to take back the goods. Depending on how much you have paid, the lender may not need to get a court order first.

For more information about when a lender can repossess goods on hire purchase, see Hire purchase.

Making contact with non-priority creditors

Don't ignore letters or phone calls from your non-priority creditors. Get in touch with them as early as possible. You should do this even if you're not yet in a position to know whether it's possible to pay them back or what arrangements you want to make for paying them back.

Explain that you're trying to deal with your debts and that you'll contact them again shortly when you're in a position to know how much you can afford to pay.

Ask them if you can stop paying interest and charges on your debts in the meantime. This is called freezing the interest. If you have to carry on paying interest, your debt will just keep on growing.

Also, ask them if they will put taking any further action, such as going to court, on hold until you've had time to work out how you are going to deal with your debts.

If the first person you speak to is unhelpful, ask to speak to someone more senior.

Make a note of all telephone calls or meetings. This should include the name of the person you spoke to and what you agreed.

Follow up phone calls with a letter, confirming what you said and keep copies of your letters.

When you write or speak to your creditors, make sure you explain your situation fully. If they know about your circumstances, they might be prepared to give you extra time to pay up.

For example, you might not be able to pay off anything towards your debts at the moment because you've lost your job, or are off work sick. But you expect things to get easier shortly because:

you're going back to work

you're going to get benefits

you're getting a pay out from a payment protection insurance policy

you're going to sell some of your belongings to help pay your debts.

In England and Wales, for more information about payment protection insurance, see Borrowing fact sheets.

If you have any written evidence to confirm your situation, you should show this to your non-priority creditors. For example, you may have a letter from the Jobcentre Plus confirming that you've been awarded benefits or from an employer showing that you've been offered a job.

If you have priority debts, explain to your non-priority creditors that you have to pay off priority debts first and, if you can, say what you are offering to each of your priority creditors and how long it will take to pay them off. It will help if you can send the creditors a copy of your budget sheet.

Working out how to pay back your non-priority creditors

To work out whether you've got enough money to pay off your non-priority debts you will need to work out how much money you've got coming into your household and how much you need to spend. This is called your budget.

You will also need to work out whether you've got any priority debts and make sure you've got enough money to pay these off first, before you can deal with your non-priority creditors.

Any money you have left over after paying your expenses and your priority creditors is called your available income. You can use this to pay off your non-priority creditors.

You should share out your available income fairly between all your non-priority creditors. This means you should offer each creditor a percentage of your available income, based on the amount you owe them. These offers are called pro-rata offers.

To work out your pro-rata offers, first of all multiply each individual debt by your available income. Then divide this sum by the total amount you owe to all of your non-priority creditors.

Example:

You have total debts of £15,000. You have available income of £200 a month. You owe £10,000 to credit card company A and £5,000 to credit card company B.

Credit company A

Multiply £10,000 (debt to company A) by £200 (your available income). This equals £2,000,000.

Divide this by £15,000 (your total debt). This gives you the sum of £133 per month to offer to company A.

Credit company B

Multiply £5,000 (debt to company B) by £200 (your available income). This equals £1,000,000.

Divide this by £15,000 (your total debt). This gives you the sum of £66 per month to offer company B.

This is the system used by the courts for working out what you can reasonably afford to pay and it is accepted by most creditors.

Making re-payment offers to your non-priority creditors

Once you've worked out how much you can afford to pay your non-priority creditors, you will need to write to each of them.

Send them a copy of your personal budget and a list of your other creditors to show them how you have worked out your offers. Make sure you keep a copy of everything you send to your creditors.

You can use our online budgeting tool to help you work out how much you've got to pay off your non-priority debts. The tool lets you print off a financial statement which shows your creditors how you have worked out your offers.

Creditors don’t have to accept your offers but will usually consider any reasonable request or offer of repayment that you make.

Sometimes, you need to contact creditors several times before they will agree to what you are asking.

Creditors often want to look at your offer again after a fixed time, for example six months, to see if your situation has improved.

Even if your creditors accept your re-payment plan and you stick to the plan, this won't always stop them taking court action against you. So it's really important that you don't ignore any letters from your creditors, even if you believe you've reached an agreement with them. And if a creditor seems to be going back on an agreement, get advice straight away.

You don't have to deal with your non-priority creditors yourself if you don't want to.

You can get free help to deal with your creditors from your local Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by e-mail, click on nearest CAB.

You may also be able to get a debt management company or an Insolvency Practitioner to deal with your non-priority creditors for you.

For more information about debt management companies, Insolvency Practitioners and other options for dealing with your creditors, see Options for dealing with debt.

If your circumstances change

If your circumstances change, draw up a new budget and make new offers to pay based on how much you can now afford. Write to all your creditors explaining the reasons for the new offer and send them a copy of your new budget.

A creditor may question your budget and claim that you can afford to pay more than you're offering.

In this case, you will have to be prepared to provide proof of your income and expenditure such as:

wage slips and benefits details

copies of gas and electricity bills

details of rent or mortgage payments

medical evidence that you are off work sick.

It's also a good idea to include a short explanation in a covering letter to your creditors about why you think the amount you spend on something is reasonable. This will make it easier for creditors to accept your budget.

If creditors continue to refuse your offers of repayment, don't be tempted to pay back more than you can afford.

Some creditors may try to pressurise you into paying back more or ask you to pay more than you are paying other creditors. Increasing an offer to one creditor would mean you had less money to pay to the others. If creditors don't think you're treating them all fairly, they can refuse your offer to pay altogether and start court action against you.

If you find this is happening, or you are having difficulty in dealing with your creditors, get advice.

Your local Citizens Advice Bureau can help you deal with difficult creditors. To search for details of your nearest CAB, including those that can give advice by e-mail, click on nearest CAB.

You have no money to offer non-priority creditors

After working out your household budget, you may find you have no money left over to pay your non-priority creditors.

You should check whether you can increase your income in any way, for example by claiming a benefit or renting a room in your house.

Think about how much you spend on things and whether you can make any cutbacks. If you can make cutbacks, this may make some money available for you to pay back your debts. But be careful about cutting back on essentials such as food and clothing. You may not be able to manage on lower amounts in the long term.

If you can't offer any money to your non-priority creditors, explain why. Ask them if they'll freeze the interest and charges and let you stop making payments for three to six months. Say you'll contact them as soon as your situation changes and you're able to start payments again. Or you could try making a token offer of £1.00 a month to all your creditors. Be careful because, if you have a lot of individual debts, offering them even £1.00 each can add up to more than you can manage.

This is only a short term solution, otherwise it can take years to pay off what you owe. If you don't think your situation is likely to get any better, you will need to consider what to do next very carefully.

If you have a mental health problem your creditors should take this into account when dealing with you. Many creditors have a special team to deal with people with mental health problems and have special procedures in place to ensure that they are dealing with you fairly. There is a guide to debt and mental health on the Moneysavingsexpert website at www.moneysavingexpert.com.

Debt collectors

Many lenders use debt collection companies to collect debts on their behalf because it works out cheaper for them. This is a normal part of the recovery process and you shouldn't worry if you are contacted by a debt collector for money you owe. Debt collectors don't have any extra powers but you may find that they're more persistent.

Don't let debt collectors pressure you into making arrangements you can't keep up. Treat debt collectors in the same way as you would any other creditor.

Some debt collectors may pretend to have more legal powers than they really have. For example, they may say that they can take your goods away, when in fact only a bailiff can do this and they need to get a court order first. If a debt collector does this, you should complain to them or to the creditor whose debt they are collecting. If you are still not satisfied or the complaint is not sorted out, you can complain to the Financial Ombudsman Service.

There are also the Financial Conduct Authority (FCA) rules and guidance that debt collectors have to follow. For example, a debt collector should not continue with a home visit if you ask them to leave, or if it's obvious that you're distressed or you're not able to make informed decisions, for example because you have a learning disability.

If debt collectors don't follow the FCA guidance, action can be taken against them. If you’re being harassed by debt collectors or are unsure what powers they have, get further advice from an experienced adviser.

More about the FCA rules and guidance in the Consumer Credit Sourcebook at www.fca.org.uk.

Discrimination

Creditors and debt collectors are not allowed to discriminate against you, for example, because of your age, race, sex, disability, sexuality, or religion. This includes not using language which you find offensive because of your age, race, sex, disability, sexuality or religion.

If you think you aren't being treated fairly by a creditor or debt collector or if they are not keeping to the rules, you should get advice about what to do from an experienced adviser, for example, at a Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by email, click on nearest CAB.

Credit card debts

If you have credit card debts and the debt hasn't been passed to a debt collector, you should be allowed a period of grace to agree a repayment plan with a non-profit debt advice agency, such as a Citizens Advice Bureau. This should be a period of at least 30 days. It can be extended to 60 days if you can show that progress on a repayment is being made but you need extra time.

You may also be able to get a 30 day period of grace if your credit card debt has been passed to a debt collection agency. But they must belong to the Credit Services Association (CSA) and you will need to ask for it. During this period, the debt collection agency should not try to contact you in any way.

You can check whether a debt collection agency belongs to the CSA by searching their membership list at: www.csaconsumers-uk.com.

A creditor is acting aggressively or harassing you

Creditors are not allowed to intimidate you, harass you or pretend to have more legal powers than they really have.

A creditor who acts aggressively could be an illegal money lender (loan shark). Money lenders must be authorised by the Financial Conduct Authority (FCA). If they are not authorised, they are operating illegally.

In England, if you think a money lender is operating without being authorised, you can report them to a Helpline run by the government funded Illegal Money Lending Project. People running the Helpline can give you advice about your situation and investigate the money lender. The Helpline number is 0300 555 2222.

In Wales, you can report concerns about a money lender to the Wales Illegal Money Lending Unit which operates a 24 hour confidential helpline on: 0300 123 33 11.

You can find out whether a money lender is authorised by checking the register on the FCA website at www.fca.org.uk.

Your local Citizens Advice Bureau can help you if you are being harassed by your creditors. To search for details of your nearest CAB, including those that can give advice by e-mail, click on nearest CAB.

A creditor takes court action

If you can't reach an agreement with one of your creditors to pay off your debt, they may take you to court.

Sometimes creditors will take you to court even if you have reached an agreement with them and stuck to it. However, they usually have to send you a written notice first, warning you that they will start court action if you don't settle your debt.

If court action has started, make sure you always reply to letters from the court within the time limit. Get advice if you don't know how to fill in these forms.

If you agree that you owe the amount claimed, fill in the admission form, which you'll get with the other court documents. You'll have to give details of your financial situation. If you've already worked out a budget, you can use this to help you fill out the form. If you've already worked out how much you can afford to pay your creditors, you can offer to make payments for the same amounts.

If your offer is refused or you don't accept that you owe the money, you should get advice from an experienced debt adviser.